[Federal Register Volume 71, Number 170 (Friday, September 1, 2006)]
[Proposed Rules]
[Pages 52014-52017]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-7394]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 422

[CMS-4121-P]
RIN 0938-AO54


Medicare Program; Prohibition of Midyear Benefit Enhancements for 
Medicare Advantage Organizations Offering Plans in Calendar Year 2007 
and Subsequent Calendar Years

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would prohibit Medicare Advantage (MAs) 
organizations, including organizations offering employer/union group 
health plans (EGHPs) (that is, plans that enroll both beneficiaries and 
employer/union members (plans open to general enrollment) and plans 
that are not open to general enrollment), from making midyear changes 
to nondrug benefits, premiums, and cost-sharing submitted in their 
approved bids for a given contract year. Programs of all-inclusive care 
for elderly (PACE) would not be subject to the provisions of this 
proposed rule and could continue to offer enhanced benefits as 
specified in our guidance for PACE plans.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on October 31, 2006.

ADDRESSES: In commenting, please refer to file code CMS-4121-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (no duplicates, 
please):
    1. Electronically. You may submit electronic comments on specific 
issues in this regulation to http://www.cms.hhs.gov/eRulemaking. Click 
on the link ``Submit electronic comments on CMS regulations with an 
open comment period.'' (Attachments should be in Microsoft Word, 
WordPerfect, or Excel; however, we prefer Microsoft Word.)

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    2. By regular mail. You may mail written comments (one original and 
two copies) to the following address only:
    Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Attention: CMS-4121-P, P.O. Box 1850, Baltimore, MD 
21244-1850.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments (one 
original and two copies) to the following address only: Centers for 
Medicare & Medicaid Services, Department of Health and Human Services, 
Attention: CMS-4121-P, Mail Stop C4-26-05, 7500 Security Boulevard, 
Baltimore, MD 21244-1850.

    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments (one original and two copies) before the 
close of the comment period to one of the following addresses. If you 
intend to deliver your comments to the Baltimore address, please call 
telephone number (410) 786-9994 in advance to schedule your arrival 
with one of our staff members. Room 445-G, Hubert H. Humphrey Building, 
200 Independence Avenue, SW., Washington, DC 20201; or 7500 Security 
Boulevard, Baltimore, MD 21244-1850.

(Because access to the interior of the HHH Building is not readily 
available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for persons wishing to retain a proof of filing by stamping 
in and retaining an extra copy of the comments being filed.)

    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

SUPPLEMENTARY INFORMATION:
    Submitting Comments: We welcome comments from the public on all 
issues set forth in this rule to assist us in fully considering issues 
and developing policies. You can assist us by referencing the file code 
CMS-4121-P and the specific ``issue identifier'' that precedes the 
section on which you choose to comment.
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: http://www.cms.hhs.gov/eRulemaking. Click on the link ``Electronic Comments on 
CMS Regulations'' on that Web site to view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

FOR FURTHER INFORMATION CONTACT: Christopher McClintick (410) 786-4682.

I. Background

    [If you choose to comment on issues in this section, please include 
the caption ``Background'' at the beginning of your comments.]

    Title II of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) (Pub. L. 108-173) made important 
changes to the Medicare+Choice (M+C) program under Part C of Medicare 
and renamed the program Medicare Advantage (MA). In the August 3, 2004 
Federal Register (69 FR 46866), we published a proposed rule that set 
forth the provisions that would implement Title II of the MMA. 
Subsequently, in the January 28, 2005 Federal Register (70 FR 4588), we 
published a final rule to implement our proposals. The changes that MMA 
made to the MA program--
     Provided for regional plans that have made private plan 
options available to many more beneficiaries, especially those in rural 
areas.
     Expanded the number and type of plans provided for, so 
that more beneficiaries can choose from Health Maintenance 
Organizations (HMOs), Preferred Provider Organization (PPO) plans, and 
Private Fee-for-Service (FFS) plans, and further authorized Medical 
Savings Account (MSA) plans, if available where the beneficiary lives.
     Enriched the range of benefit choices available to 
enrollees including improved prescription drug benefits under the new 
Medicare Part D.
     Provided incentives to contracting health plans to create 
specialized plans to coordinate and manage care in ways that 
comprehensively serve those with complex and disabling diseases and 
conditions.
     Used competition among MA plans to improve service, 
improve benefits, invest in preventive care, and hold costs down in 
ways that attract enrollees.
     Enhanced and stabilized payments to contracting 
organizations, improved program design, introduced new flexibility for 
plans, and reduced impediments to plan participation.
     Advanced the goal of improving quality and increasing 
efficiency in the overall health care system.
    Over time, organizations offering MA plans will be under continued 
competitive pressure to improve benefits, reduce premiums and cost 
sharing, and improve networks and services in order to gain or retain 
enrollees. In addition, we expect MA organizations offering plans to 
use integrated health plan approaches such as disease prevention, 
disease management, and other care coordination techniques. In doing 
so, integrated plans that combine the original Parts A and B of 
Medicare and the new Part D drug benefit and apply these innovative 
techniques must pass on savings that may result from these care 
coordination techniques to the enrollee through reduced premiums or 
additional benefits.
    In conjunction with the new Part D drug benefit required under 
Title I of MMA, which was finalized in the January 28, 2005 Federal 
Register (70 FR 4194), changes made in the MMA to the MA program are 
intended to bring about broad-based improvements to the Medicare 
program's benefit structure, including improved prescription drug 
coverage under the MA program. Organizations offering local and 
regional coordinated care MA plans must offer at least one plan with 
the Medicare prescription drug benefit or an actuarially equivalent 
drug benefit.
    Beginning in 2006, payments for local and regional MA plans are 
based on amounts submitted in bids rather than on a statutory formula. 
MA organizations offering health plans submit an annual aggregate bid 
amount for each MA plan. An aggregate plan bid is based upon the MA 
organization's determination of expected costs in the plan's service 
area for the national average beneficiary for providing nondrug 
benefits (that is, original Medicare (Part A and Part B) benefits), 
Part D basic prescription drugs, and supplemental benefits (including 
reductions in cost sharing). For an MA plan's coverage of original 
Medicare benefits, our payment to an MA organization depends on the 
relationship of the plan's basic A/B bid to a ``benchmark'' amount 
determined through a statutory formula (for regional

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plans the benchmark is based in part on bids submitted in the region). 
For a plan with a basic A/B bid below its benchmark, we pay the MA 
organization the basic A/B bid amount, adjusted by the individual 
enrollee's risk factor, plus the rebate amount. (The rebate is 75 
percent of the difference between the plan bid and benchmark, and is 
used to provide mandatory supplemental benefits or reductions in Part B 
or Part D premiums. The government retains the other 25 percent.) For a 
plan with a bid equal to or above its benchmark, we pay the MA 
organization the plan benchmark, adjusted by the individual enrollee's 
risk factor. The MA organization is required to charge any difference 
between its bid and the benchmark in the form of a premium.

II. Provisions of the Proposed Rule

    [If you choose to comment on issues in this section, please include 
the caption ``Provisions of the Proposed Regulations'' at the beginning 
of your comments.]

    In the August 3, 2004 Federal Register (69 FR 46866), we proposed 
to prohibit MA organizations from offering midyear benefit enhancements 
(MYBEs) that is, enhanced benefits or reductions in premiums or cost-
sharing amounts not specified in the approved bid for the calendar year 
(CY) in question. In commenting on the August 3, 2004 proposed rule, 
several commenters objected to our proposal to eliminate MYBEs. These 
commenters believed that we could allow MYBEs without affecting the 
integrity of the bidding process.
    In the January 28, 2005 final rule (70 FR 4639), we noted that 
under the previous M+C program, we permitted M+C organizations to offer 
new plans midyear and to offer MYBEs to existing benefit packages. In 
the final rule (70 FR 4640), we also noted that MYBEs ``* * * would be 
a de facto adjustment to the benefit packages from which bids were 
submitted earlier in the year.'' In our related final rule (published 
January 28, 2005 (70 FR 4301)) implementing the Medicare prescription 
drug benefit (Part D regulations), we stated that MYBEs ``* * * would 
be de facto acknowledgement that the revenue requirements submitted by 
the plan were overstated.'' We also note that the Part D regulations do 
not permit MYBEs under any circumstances. Although we acknowledged that 
MYBEs could threaten the integrity of the bidding process, in response 
to comments on the August 3, 2004 proposed rule, we decided to permit 
them on an interim basis under limited circumstances. Therefore, in the 
January 28, 2005 final rule (70 FR 4640), we stated that we would 
permit MYBEs to nondrug benefits only under the following 
circumstances:
     An MYBE can be effective no earlier than July 1 of the 
contract year, and no later than September 1 of the contract year;
     MA organizations cannot submit MYBE applications later 
than July 31 of the contract year; and
     Twenty-five percent of the value of the MYBE will be 
retained by the government.
    If the MYBE meets the circumstances described above, the requesting 
MA organization--
     Must ``submit, for each plan or segment, a revised bid and 
any supporting documentation related to the enhancement, including 
information on where the revenue requirements were overstated in the 
annual June bid submission;'' and
     Would be subject to CMS consideration of ``whether there 
is a current year MYBE request when analyzing a plan's bid for the 
following year.''
    In the final rule, we exempted the program of all-inclusive care 
for the elderly (PACE) plans and employer/union group health plans 
(EGHPs) that are not open to general enrollment (that is, both the 
``800 series'' employer-only plans and group plans where we contract 
directly with the employer/union offering an MA product, now referred 
to collectively as employer/union-only group waiver plans (EGWPs)) from 
the new restrictions on MYBEs. As stated in the final rule (70 FR 
4640), we exempted PACE plans in order to promote coordination of Part 
C and Part D benefits with the benefits PACE plans are required to 
offer under section 1894 of the Act. In the January 28, 2005 final 
rule, we also noted that we did not believe that the competitive nature 
of the bidding process was affected if benefit packages for PACE 
organizations or EGHPs not open to general enrollment were adjusted 
midyear in accordance with our guidance.
    In addition, we stated (70 FR 4640) that we considered this policy 
to be an interim policy ``for the initial years'' of the competitive 
bidding system, and indicated we would ``review whether there is a 
continuing need for this policy.'' We have reevaluated our MYBE policy 
over the course of the first contract year of the new bidding process, 
and believe that there is no longer a need for this interim policy. We 
note that this policy was intended to assist MA organizations during 
the initial phase of the new bidding process, while ensuring that 
beneficiaries have a choice of plans. We believe the focus should now 
be solely on ensuring the integrity of the bidding process established 
by statute so that there will be an even playing field for 
organizations and, as a result, a choice of health plan options for 
beneficiaries.
    We believe that continuing the current MYBE policy would threaten 
the integrity of the competitive bidding process established by the 
MMA. Under the bidding process, MA organizations compete with one 
another by submitting plan bids that specify the revenue requirements 
for offering the various components of their health plans. We believe 
that permitting MYBEs could undermine the integrity of the competitive 
bidding process as MA organizations, knowing that they could alter 
their benefit packages after the bidding process was complete, could 
misrepresent their actual costs to provide benefits (overbid) and 
noncompetitively revise their benefit packages later in the year. More 
specifically, we believe that MYBEs offered in July or September of the 
contract year would be offered in a way primarily to attract 
individuals in their initial coverage election period (ICEP). We 
believe that such individuals are very attractive to MA organizations 
because of their relatively low utilization (they are new to the 
program and tend to be healthier) and because of their numbers 
(nationally, over 100,000 individuals per month ``age-in'' to 
Medicare). Additionally, we estimate that organizations planning on 
revising their bids through MYBEs could overbid by approximately 2-3 
percent in order to distinguish themselves from other plans later in 
the year and attract ICEP beneficiaries.
    Using the MYBE process in this manner would undermine the 
competitive nature of the bidding process in two ways. First, it would 
encourage overbidding, and second, it would penalize MA organizations 
that do not attempt to ``game the system'' and which instead offer a 
bid that more accurately represents their costs to offer benefits over 
the full course of a contract year.
    While it is too early in the MA program to quantify the percentage 
of plans that we believe would use MYBEs to bolster plans later in the 
year, we will gather data and incorporate our findings in our response 
to public comment, as appropriate. We believe, however, that allowing 
MYBEs in 2006 has served its purpose to ease the transition to the new, 
more competitive MA program. We are equally convinced that our

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primary goal going forward must be to ensure, as mandated by statute, 
that plans compete on an even playing field and that beneficiaries will 
gain in terms of cost, plan choices, and generosity of benefits. We 
believe we can help achieve this goal only if MYBEs are not permitted 
in subsequent years.
    Furthermore with respect to MYBEs, we do not believe that nondrug 
benefits should be treated differently than Part D benefits. Similarly, 
with respect to all EGHPs including EGWPs, we believe that the 
integrity of the competitive bidding process overrides any possible 
program benefit from MYBEs. Therefore beginning with CY 2007, we are 
proposing that MA organizations, including all organizations offering 
EGHPs, would not be permitted to make any midyear changes in benefits, 
premiums, or cost-sharing, even under the circumstances in which these 
types of changes were permitted in CY 2006. This includes EGHPs that 
enroll both beneficiaries and employer/union members (in other words 
plans open to general enrollment) and plans not open to general 
enrollment. We note that programs of all-inclusive care for the elderly 
(PACE) would be able to continue to offer MYBEs in accordance with our 
guidance for PACE plans.

III. Response to Comments

    Because of the large number of items of correspondence we normally 
receive on Federal Register documents published for comment, we are not 
able to acknowledge or respond to them individually. We will consider 
all comments we receive by the date and time specified in the DATES 
section of this preamble, and, when we proceed with a subsequent 
document, we will respond to the comments in the preamble to that 
document.

IV. Collection of Information Requirements

    This document does not impose information collection and 
recordkeeping requirements. Consequently, it need not be reviewed by 
the Office of Management and Budget under the authority of the 
Paperwork Reduction Act of 1995.

V. Regulatory Impact Statement

    [If you choose to comment on issues in this section, please include 
the caption ``Regulatory Impact Statement'' at the beginning of your 
comments.]

    We have examined the impact of this rule as required by Executive 
Order 12866 (September 1993, Regulatory Planning and Review), the 
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), 
section 1102(b) of the Social Security Act, the Unfunded Mandates 
Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.
    Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). A regulatory impact 
analysis (RIA) must be prepared for major rules with economically 
significant effects ($100 million or more in any 1 year). This rule 
does not reach the economic threshold and thus is not considered a 
major rule. However, we are requesting comments regarding the possible 
impact of our proposal to prohibit MYBEs.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and small governmental 
jurisdictions. Most hospitals and most other providers and suppliers 
are small entities, either by nonprofit status or by having revenues of 
$6 million to $29 million in any 1 year. Individuals and States are not 
included in the definition of a small entity. The MA program, by having 
both regional and local plans, provides an opportunity for health 
insurance entities of all types and most sizes (but probably not below 
the ``small'' insurance entity cutoff level defined by the SBA ($6 
million), which is lower than appears viable for a comprehensive, risk-
bearing insurance plan) to participate. Therefore, we are not preparing 
an analysis for the RFA because we have determined that this rule will 
not have a significant economic impact on a substantial number of small 
entities.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 603 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 100 beds. We are not preparing an 
analysis for section 1102(b) of the Act because we have determined that 
this rule will not have a significant impact on the operations of a 
substantial number of small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. That threshold 
level is currently approximately $120 million. This rule will have no 
consequential effect on State, local, or tribal governments or on the 
private sector.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. Since this regulation does not impose any costs on State 
or local governments, the requirements of E.O. 13132 are not 
applicable.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: May 5, 2006.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.

    Approved: June 12, 2006.
Michael O. Leavitt,
Secretary.
[FR Doc. 06-7394 Filed 8-31-06; 8:45 am]
BILLING CODE 4120-01-P